In a recent decision, the U.S. Supreme Court held that Pennsylvania’s long-arm statute, deeming businesses registered to do business in the Commonwealth to have consented to personal jurisdiction in any type of action, complies with the due process clause.
Although the Supreme Court’s decision in Mallory v. Norfolk Southern Railway Co. appears to set new statutory “consent” criteria for establishing general personal jurisdiction over out-of-state corporations, the 4-1-4 plurality ruling has left a sense of uncertainty of its long-term impacts. What is clear is that Mallory has the potential to bring forth the most fundamental shift in jurisdictional case law in decades. To that end, practitioners should analyze the holding in Mallory and quickly consider its implications for corporate clients nationwide.
Neither the plaintiff nor the defendant’s corporate “home” was located Pennsylvania. Robert Mallory, a Virginia resident, filed suit in Pennsylvania, alleging that Norfolk Southern Railway, a Virginia corporation whose principal office is also in Virginia, is liable for a cancer Mallory developed after decades of work for the railway in Virginia and Ohio. The case for Pennsylvania courts’ general personal jurisdiction over Norfolk appeared to require Norfolk having substantial and continuous Pennsylvania contacts and conduct, right?
Not so fast.
The Supreme Court held in Mallory that Norfolk subjected itself to general personal jurisdiction in the Commonwealth because Pennsylvania’s long-arm statute dictates that, by merely registering to do business in Pennsylvania, Norfolk subjected itself to general personal jurisdiction in the state on “any cause of action.”
While the result in Mallory is undoubtedly a surprise to some, there were signs a change was on the horizon. For example, a year ago, we cautioned against assuming the Court’s conservative justices would simply maintain the jurisdictional status quo. When doing so, we noted key language from Justice Neil Gorsuch concurrence — joined by Justice Clarence Thomas — in the 2021 case, Ford Motor Co. v. Montana Eighth Judicial District Court. There, Justice Gorsuch appeared to lament the continuing impact of International Shoe’s “jurisdictional protections” in our modern corporate world:
Even today, this Court usually considers corporations “at home” and thus subject to general jurisdiction in only one or two States. All in a world where global conglomerates boast of their many “headquarters.” The Court has issued these restrictive rulings, too, even though individual defendants remain subject to the old “tag” rule, allowing them to be sued on any claim anywhere they can be found. Nearly 80 years removed from International Shoe, it seems corporations continue to receive special jurisdictional protections in the name of the Constitution. Less clear is why.
Consequently, signs of potential cracks in International Shoe’s armor were apparent to those looking carefully.
Legal professionals and business leaders must now decipher the implications of this decision nationwide and determine whether it is a meaningful departure from prior personal jurisdiction standards. This article will summarize the Mallory Court’s decision and identify the potential considerations for businesses.
At first blush, Mallory contradicts the contacts-based test established in International Shoe, particularly in view of recent precedent. In the past decade, the Supreme Court has prominently refined the test and raised the bar for what contacts may satisfy the courts’ exercise of general jurisdiction over a defendant entity — specifically, in 2011’s Goodyear Dunlop Tires Operations SA v. Brown and in 2014’s Daimler AG v. Bauman.
As a brief refresher, general personal jurisdiction arises over a foreign corporation when the company’s business operations within a state are so substantial and of such a nature as to justify suit against it on causes of action arising from matters distinct from its operations. Accordingly, if a defendant is subject to general jurisdiction in a particular state, it means the individual or entity may be sued in that state for any claim — regardless of the nature and location of the underlying acts. In contrast, specific jurisdiction covers a narrower class of claims, and comes from a defendant’s specific acts — or a single act — directed at or within the forum state, which a plaintiff’s claims must arise out of or relate to.
In the post-Mallory era, it appears a state may by statute require out-of-state corporations to consent to personal jurisdiction for any cases filed in the state in order to do any business there. Stated plainly, mere registration may subject a business to in-state litigation. Justice Gorsuch’s opinion treats this consent-by-statute analysis as separate from the contacts-based test. This is a change from the test in Goodyear and Daimler, which only allowed general jurisdiction over a defendant if the defendant’s affiliation and contacts with the state “are so continuous and systematic as to render [the defendant] essentially at home” there.
The impact of Mallory is precarious, however, in view of Justice Samuel Alito’s concurrence in which he raised strong concerns that the Pennsylvania statute runs afoul of the dormant commerce clause. If these federal constitutional concerns are valid, Mallory will be a brief blip in the legal landscape.
But constitutional challenges and appeals take years, so what should Texas businesses do in the meantime?
A few states, including Nebraska, Pennsylvania and Georgia, currently have laws stating that companies consent to general jurisdiction in the state by registering to do business there. If your businesses has operations in one of those jurisdictions, under Mallory you could potentially be sued there in any action. As Justice Alito noted, Pennsylvania is home to plaintiff-friendly juries.
However, Texas and other states have not directly addressed the issue. And Mallory opens the doors for new state laws expanding their courts’ jurisdictional reach. Businesses must grapple with this uncertainty and the accompanying risks it presents. To that end, monitoring both statutory and case law developments will be essential to effectively navigate the challenges presented by this ruling.
But what if Mallory signals a swing away from Goodyear and Daimler such that out-of-state entities doing business in Texas may be subject to local lawsuits? Or, more importantly, what if the Texas Legislature, in the wake of Mallory, adopts statutory “consent to litigation” requirements for business registration? In short, businesses with any type of multistate footprint should be aware of the increased risk of being haled into a foreign court.
An increased likelihood of finding personal jurisdiction over out-of-state businesses can have several impacts on local businesses. Here are some potential effects:
Home court advantage: Texas businesses would have an easier time establishing personal jurisdiction over non-Texas businesses with a local presence. This means that if a Texas business has a dispute with an out-of-state entity, it can pursue legal action at home, which can be more convenient and cost effective compared to litigating in another jurisdiction. It provides Texas businesses with increased access to the legal system and the ability to protect their rights and interests locally.
Lower legal bills: If Texas statutes provided personal jurisdiction over out-of-state entities, it would streamline litigation. Avoidance of preliminary jurisdictional challenges and related appeals would allow parties to focus their resources on the merits of the case rather than procedural hurdles.
Attract new business: If Texas is known for having a lower burden of proving personal jurisdiction, it may become a more attractive destination for businesses seeking to expand their operations.
These benefits will ultimately depend on the specific circumstances and legal landscape in Texas. It is crucial to acknowledge that the full extent of Mallory’s impact remains uncertain and will likely be shaped by subsequent proceedings not only in Pennsylvania but also through other courts’ interpretations and evolution of state-specific statutes.
Amanda Cottrell is a partner in the business trial practice group in Sheppard Mullin’s Dallas office.
Jonathan Clark is an associate in the labor and employment practice group in Sheppard Mullin’s Dallas office.